State Farm tests blockchain insurance solution

Today State Farm, the largest U.S. property/casualty insurer, announced it’s testing a blockchain solution. The project is for auto claim subrogation which is the process by which insurers settle claims between each other. It’s been working with another significant insurer to test the project. While both insurers are members of The Institutes RiskBlock Alliance, this is not a RiskBlock initiative.

“Today, subrogation is a relatively manual, time-consuming process often requiring physical checks to be mailed on a claim-by-claim basis between insurers,” said Mike Fields, innovation executive, State Farm. “You can imagine the time and resources required to complete these transactions.”

“It helps us automate a manual process securely and creates a permanent transaction record of each payment which can easily be verified for accuracy. It also has the potential to decrease the amount of time for consumers to receive their deductible reimbursement.”

According to SNL Financial, property & casualty insurers across all lines subrogated $11 billion worth of claims in 2017. Of that roughly $750 million was for private passenger auto claims.

The project is quite advanced as it’s currently in the second phase of testing and running alongside the regular subrogation process. There are plans to evaluate the outcome at the end of the year, and potentially offer it to other insurers at that stage.

A State Farm spokesperson told Ledger Insights that the tool was developed in-house without a major consultancy.

RiskBlock’s solution

RiskBlock also has a subrogation initiative, but it was put on the back burner while the Alliance focuses on getting its first two projects into production for “Proof of Insurance” and “First Notice of Loss”.

John Pileggi at Liberty Mutual leads RiskBlock’s subrogation tool. At the recent Blockchain in Insurance conference in Philadelphia, Pileggi stated that blockchain is useful throughout the subrogation process, but the RiskBlock solution focuses on the tail end, on net settlement.

“Rather than sending many individual payments back and forward between our companies over and over again, we can settle on a net basis, both in and out, payables and receivables, on a predetermined cadence at whatever the counterparties agree to,” said Pileggi. “So we can net all those payments in a single transaction, and we can do so daily, weekly, twice a month, whatever we agree upon.”

Speed versus broad collaboration

RiskBlock has a large number of members, and a lot of demand to meet. It’s unlikely State Farm will be the last to build a project outside of the Alliance. By moving quickly on its own, State Farm might be able to get the solution it needs faster. But ultimately it will need many other insurers involved for this application to be useful.

To date, RiskBlock has been receptive to insurers bringing along their own code.